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Delay in employer mandate offers flexibility, but creates confusion

IRS details for employers

Some other details in the IRS rules that employers should know:

• Employers with 100 or more employees are not allowed to reduce their workforce to qualify for the additional year of delayed penalties.

• Employers that do not extend coverage to dependent children are not required to extend coverage to dependent children until 2016. This is provided that the employer is taking steps to provide this coverage during 2014/2015.

Southeast Michigan companies seeking to comply with the Affordable Care Act's employer mandate to offer health insurance were thrown for a loop last week when the Obama administration announced another delay in enforcement of the financial penalties for noncompliance in the 4-year-old law.

Elaine Coffman, McGraw Wentworth

But the announcement is creating more confusion than relief among affected employers, said Elaine Coffman, account director with Troy-based McGraw Wentworth.

"Initial media coverage has been very misleading. Large employers (with 100 or more employees) are still subject to a $3,000 penalty (in 2015) if an employee receives subsidized coverage in the public market plan," Coffman said.

In a 59-page final rule published last week in the Federal Register by the Internal Revenue Service, Coffman listed four categories in which rule changes and clarifications could impact companies.

• Employers with 50-99 employees. Due to criticisms by business groups, the Obama administration gave employers one more year to comply and avoid the tax penalties, also known as the employer-shared responsibility payments.

These employers, which the IRS says account for 7 percent of the workforce, now have until Jan. 1, 2016, to comply with Obamacare's employer insurance mandate.

• Employers with 100 or more qualified full-time employees who don't offer coverage to some segments of employees still must comply with the law by Jan. 1, 2015.

These employers, which the IRS says account for 66 percent of the workforce, have more flexibility in how many employees are offered coverage. For example, only 70 percent must be offered coverage to avoid penalties next year; 95 percent must be offered coverage in 2016 and beyond.

• Employers who have nontraditional types of employees, including seasonal, volunteer and educational workforces, have new information on how to identify full-time employees.

• Employers who have plan years that don't renew on Jan. 1 also have transitional relief, making it much easier to comply on their renewal date later in the year.

Kirk Roy, Blue Cross Blue Shield of Michigan

Kirk Roy, vice president of health reform with Blue Cross Blue Shield of Michigan, said the clarification on the plan start date is new. He said school systems are most affected because their plans usually start in September.

"The original rule was (Jan. 1) 2015, but if your plan year starts Sept. 1, the IRS will give you about a half year until the plan year starts," Roy said. "This is an important clarification."

Coffman said employers can look at compliance with the 70 percent coverage rule this way: Company "A" has 1,000 employees in five divisions with 200 workers in each division. But it offers health insurance to only three divisions, or 600 employees (60 percent).

To comply, a company could offer coverage to a fourth division, which would increase its coverage offering to 80 percent.

Roy said the percentage of employees offered health insurance is intended to help employers with large numbers of part-time workers.

"What is still not clear is how employers document and report this to the IRS," he said.

But penalties still could be assessed if the employer has one or more full-time employee who is a premium tax credit, Roy said. The shared responsibility payment is computed separately for each employee.

Companies still have to offer plans to employees that can't exceed more than 9.5 percent of the taxpayer's household income, Roy said.

To calculate the potential shared responsibility payment for workers seeking coverage though the public marketplace, payments owed the IRS for the month equals the numbers of FTEs who receive a premium tax credit for that month multiplied by 1/12 of $3,000.

Coffman said large employers of more than 100 FTEs still face penalties if any of their employees receive health insurance through the exchange and garner federal subsidies.

For example, if at least one full-time employee receives a premium tax credit because coverage is either unaffordable or does not cover 60 percent of total costs, the employer must pay the lesser of $3,000 for each of those employees receiving a credit or $2,000 for each of their full-time employees in total.

A full-time employee is defined as averaging 30 or more hours per week over a minimum of three month. The first 30 employees are excluded from the penalty. For example, an employer with 75 employees would pay the penalty for 45 workers, or $90,000.

Another major change in the shared responsibility rules is a clarification on how to identify part-time, nontraditional or seasonal employees.

Seasonal employees are determined to be full-time employees based on the measurement period the employer uses for variable-hour employees. They perform labor or services on a temporary basis, including retail workers employed only during holiday seasons or manufacturing companies during peak times.

Coffman said the law shortened the break in service period from 26 weeks to 13 weeks, which allows employers to restart the measurement period like they would a new hire if the employee has a break in service of more than 13 weeks.

Here are other clarifications to help employers identify nontraditional or seasonal full-time workers:

• Volunteer hours worked by bona fide volunteers for a government or tax-exempt entity, including volunteer firefighters, will not cause them to be considered full-time employees.

• Education employees cannot be treated as part-time for the year simply because their school operates on a limited schedule in the summer.

• Student work study or co-op programs offered as part of a federal or state-sponsored work study program will not be counted to determine if they are full-time employees.

• Adjunct faculty must be credited with 2.25 hours of service per week for each hour of teaching or classroom time. The IRS has requested additional comments for this provision.